What a tax fight tells us about our broken property tax system

posted by Roger Senserrich | 80sc
September 04, 2012

The latest row over the property taxes at a big residential development in downtown New Haven looks like a fairly local issue. A big new 32 floor building, 360 State Street was recently hit with an unexpectedly steep property reevaluation. The building owners, MEPT, claim that their tax burden will quadruple next year, and have been furiously lobbying both the city and the state to get some form of a tax break.

I won´t get into the specifics on who is right in this particular debate (as New Haven resident "enjoying" tax reevaluations in East Rock, I am not that impartial) but the underlying issue behind it is important. New Haven, as most Connecticut cities, are "tax-base poor" - most of the buildings or their grant list are comparatively cheap, often part of dense, low-income neighborhoods. Property values are, consequently, fairly modest; although areas like East Rock, downtown and Westville are fairly expensive, the median home price in New Haven is still below $160,000. Trouble is, the need for municipal services is anything but low; New Haven has a similar percentage of residents under 18 that the rest of the state, but they are poorer, 50% more likely not to speak English at home and with steeper education needs. No matter how much money the state contributes to city budgets through the ECS formula, New Haven (and Bridgeport, Hartford, Waterbury and the rest of urban areas) will have higher mill rates than suburban towns with higher property values.

This creates two problems for the cities. First, attracting any kind of new development it is extremely difficult, as the high mill rates quickly become a big barrier. North Haven´s taxes are 20 points lower than on the urban core; Branford´s are even lower. Any new business seeking for a new location to its facilities will probably bypass New Haven based on this disparities alone.

In addition, anyone foolish enough to invest in the urban core (investments that make sense, like building housing besides rapid transit like 360 State does) faces the sad truth of being an island of high property values in an overwhelmingly poor city. An expensive, fancy building in downtown New Haven will get hit almost invariably by a huge tax bill, as what it adds to the grant list is nowhere close enough to leave room for a lower mill rate. Turning a profit is, consequently, much harder, further complicating new development.

The result is a self reinforcing cycle of disinvestment. Cities have a harder time attracting development, meaning they create less jobs. Existing business and residents face a higher tax burden, which drives more of them to leave. The fact that Yale is New Haven´s biggest builder is not an accident; as a non profit, they do not pay property taxes.

The current property tax system reinforces the divide in Connecticut between poor cities and wealthy suburbs, and contributes to the huge income inequality we see in the state. Changing this, or at least seriously tackling how we fund our schools, should be on the table when we talk about poverty in Connecticut.